To Our Shareholders,
We are pleased to provide you with Legg Mason Tax-Free Income Fund's annual
report for its fiscal year ended March 31, 1999. This report includes financial
information for the three series of the Fund: Maryland Tax-Free, Pennsylvania
Tax-Free and Tax-Free Intermediate.
The following table summarizes key statistics for each Fund, as of March 31,
1999:
<TABLE>
<CAPTION>
Average Net Asset Value
SEC Yield* Weighted Maturity Per Share
---------- ----------------- ----------------
<S><C>
Maryland Tax-Free +3.80% 16.00 Years $16.39
Pennsylvania Tax-Free +3.67% 16.39 Years 16.53
Tax-Free Intermediate +3.38% 7.70 Years 15.68
</TABLE>
Each of the Funds seeks a high level of current income exempt from federal
income tax. Maryland Tax-Free also seeks income which is exempt from Maryland
state and local income taxes. The Funds purchase only securities which have
received investment grade ratings from Moody's Investors Service or Standard &
Poor's or which are judged by their investment adviser to be of comparable
quality. Moody's ratings of securities currently owned by the Funds are:
<TABLE>
<CAPTION>
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate
-------- ------------ ------------
<S><C>
Aaa 49.4% 78.2% 63.7%
Aa 32.1 17.1 24.6
A 12.9 -- 6.8
Baa 2.7 -- 1.3
Short-term securities 2.9 4.7 3.6
</TABLE>
Net asset values per share for each of the Funds declined modestly from their
September 30, 1998 levels in response to rising interest rates. For the twelve
months ended March 31, 1999, total returns for Maryland Tax-Free, Pennsylvania
Tax-Free and Tax-Free Intermediate were 5.16%, 5.54% and 4.82%, respectively.
(Total return measures investment performance in terms of appreciation or
depreciation in net asset value per share plus dividends and any capital gain
distributions. It assumes that dividends and distributions were reinvested at
the time they were paid. The initial sales charge for each Fund is being waived
through July 31, 1999, and no initial sales charges are reflected in the total
return calculations above.) Past performance does not guarantee future results.
Normally, the average weighted maturity for Maryland Tax-Free and
Pennsylvania Tax-Free will be kept within a range of 12 to 24 years. Because of
their relatively long average weighted maturities, these Funds offer potentially
higher yields than short-term and intermediate-term tax-free bond funds.
However, their net asset values per share typically will decline more when
interest rates rise and gain more when interest rates fall than net asset values
per share of tax-free bond funds with short- and intermediate-term average
weighted maturities. Tax-Free Intermediate's weighted average maturity is
normally kept within an intermediate-term maturity range of 2 to 10 years. We
expect that, in most market periods, Tax-Free Intermediate will offer greater
price stability than municipal bond funds with longer maturities, while earning
somewhat lower yields.
<PAGE>
During 1998 and into 1999, the focus on the Year 2000 issue has increased
significantly. As you may know, the Year 2000 issue is a computer programming
problem that affects the ability of computers to correctly process dates of
January 1, 2000, and beyond. The Funds' Year 2000 project is well underway, and
is designed to ensure that the Year 2000 date change will have no adverse impact
on our ability to service our shareholders. The Funds are committed to taking
those steps necessary to protect our investors, including efforts to determine
that the Year 2000 problem will not affect such vital service functions as
shareholder transaction processing and recordkeeping. In addition, we are
continuously monitoring the Year 2000 efforts of our vendors, and will perform
tests with our critical vendors throughout 1999. Although the Funds are taking
steps to ensure that all of their systems will function properly before, during,
and after the Year 2000, the Funds could be adversely affected by
computer-related problems associated with the Year 2000. Contingency plans are
in place to ensure that functions critical to the Funds' operations will
continue without interruption. We are on target to complete this important
project and look forward to continuing extensive testing (including
industry-wide testing) with our industry peers, regulators and vendors
throughout 1999.
For several operational reasons, we are changing the capital gain
distribution payment schedule for these funds. Our new schedule will be to make
capital gain distributions, if any, in June and December.
Some shareholders regularly add to their holdings by authorizing monthly
transfers from their bank checking or Legg Mason accounts. Your Financial
Advisor will be happy to help you make these arrangements if you would like to
purchase shares in this convenient way.
Sincerely,
/s/ John F. Curley, Jr.
_______________________
John F. Curley, Jr.
Chairman
May 17, 1999
- ---------
*SEC yields reported are for the 30 days ended March 31, 1999. If no fees had
been waived by the Adviser, the 30-day SECyields for Maryland Tax-Free,
Pennsylvania Tax-Free and Tax-Free Intermediate would have been 3.56%, 3.37%
and 3.06%, respectively.
2
<PAGE>
Portfolio Manager's Comments
Legg Mason Tax-Free Income Fund
Market Overview and Commentary
During the year ended March 31, 1999, municipal prices increased slightly and
tax-free yields fell modestly. The municipal bond market displayed little
volatility and broke out of a relatively tight trading range only twice during
the twelve-month period. During April 1998, tax-free bond prices fell as
municipal issuance set a near record pace. This surge in volume was expected
given the lower absolute level of interest rates, which induced municipalities
to refund higher yielding debt with bonds paying lower coupons. In addition, the
robust economy created large tax bills for many individuals, who liquidated
municipal holdings to pay income taxes. Without the benefit of individual buyers
during the tax season, the market stumbled on the enormous volume. However,
prices rebounded quickly, and by mid-May the market had recovered fully.
Three months later, the municipal bond market again broke out of its trading
range, this time with a strong rally. During August 1998, escalating global
economic unrest joined with sharp corrections in U.S. equity markets to drive
U.S. bond yields to historic lows. As Japan wrestled with its economic malaise,
the crisis in the rest of Asia spread to Russia and South America. In the U.S.,
extreme leverage combined with misplaced wagers inflicted crushing losses on
some large hedge funds. This raised concern about potential damage to U.S. banks
and world financial markets if these funds liquidated their huge investment
positions. On September 29th, this concern, combined with weakening domestic
economic data, led the U.S. Federal Reserve to cut the federal funds rate on
overnight loans between banks by a quarter point, to 5.25% This was the first
interest rate cut since January 1996. Subsequently, the Fed eased twice more
before adopting a "wait and see" attitude in December 1998. This extremely
constructive environment benefited municipal bond prices, and the yield on
30-year tax-free bonds fell to 4.82%, the lowest in almost 30 years.
This market rally was not sustained, however, during the last months of 1998.
During November and December, the global and domestic forces which had acted in
concert to drive interest rates lower, gave way to conflicting signals and
higher yields by the end of 1998. During the first three months of 1999,
interest rates on Treasury bonds rose sharply. In contrast, the municipal bond
market displayed remarkable resilience. Tax-free bonds were helped by a 19% drop
in the pace of new issue supply versus last year. In addition, the relative
value of tax-free bonds increasingly attracted buyers to the market. Investors
reallocating funds out of taxable bonds into municipals did so at relative
values not seen in nearly a decade.
Maryland Tax-Free Income Trust
For the fiscal year ended March 31, 1999, the Fund's total return was 5.16%.
The average maturity of the Fund increased slightly to 16.00 years from 15.74
years over the last 12 months.
3
<PAGE>
Portfolio Manager's Comments--Continued
Pennsylvania Tax-Free Income Trust
For the fiscal year ended March 31, 1999, the Fund's total return was 5.54%.
The average maturity of the Fund decreased slightly to 16.39 years from 16.97
years over the last 12 months.
Tax-Free Intermediate-Term Income Trust
For the fiscal year ended March 31, 1999, the Fund's total return was 4.82%.
Over the last 12 months, the average maturity of the Fund has remained
essentially unchanged and currently stands at 7.70 years.
Outlook
Over the near term, we believe the manufacturing and trade sectors of the
economy will continue to be soft due to global economic weakness. Consumer
spending should return to a level more reflective of the growth in income.
Inflation should be tempered by the weakness in the commodity-based economies in
Asia and Latin America. Longer term, we believe that the forces remain in place
to produce above-trend economic growth in a low inflationary environment.
Strategy
We continue to add to positions in bonds that we believe have good
performance characteristics in both up and down markets, and continue to favor
high quality bonds with good call protection. The average credit quality in each
of the Funds is currently AA or better. In most cases, we do not believe that
the incremental yield offered by bonds rated at the lower end of the investment
grade category is sufficient to compensate investors for the higher credit risk
they pose. In addition, we continue to be very selective with regard to holdings
in the hospital sector. Although we believe that attractive values may be
created as this area of the market comes under pressure, we remain cognizant of
the competitive and financial challenges facing many health care issuers. As
always, consistent with the Funds' prospectus guidelines, we are mindful of
maintaining as high a level of distributed income on the Funds as possible.
Therefore, we generally avoid selling bonds from the Funds which have high
coupons and are selling at a significant premium to our purchase cost. Their
sale would create sizable taxable gains and their high level of distributed
tax-free income would be difficult to replace in the current rate environment.
Jane E. Trust, CFA
Portfolio Manager
April 20, 1999
4
<PAGE>
Performance Information
Legg Mason Tax-Free Income Fund
Performance Comparison of a $10,000 Investment as of March 31, 1999
The returns shown on these pages are based on historical results and
are not intended to indicate future performance. The investment return and
principal value of an investment in each of these Funds will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Average annual returns tend to smooth out variations
in a Fund's return, so they differ from actual year-to-year results. No
adjustment has been made for any income taxes payable by shareholders.
The following graphs compare each Fund's total returns against that of
a closely matched broad-based securities market index. The lines
illustrate the cumulative total return of an initial $10,000 investment
for the periods indicated after subtracting each Fund's maximum sales load
and after deducting all Fund investment management and other
administrative expenses and the transaction costs of buying and selling
portfolio securities. The line representing the securities market index
does not include any transaction costs associated with buying and selling
securities in the index or other administrative expenses. Both the Legg
Mason Funds' results and the indices' results assume reinvestment of all
dividends and distributions.
The Pennsylvania Tax-Free Income Trust has two classes of shares:
Primary Class and Navigator Class. Information about the Navigator Class,
offered only to certain institutional investors, is contained in a
separate report to its shareholders.
Maryland Tax-Free Income Trust
- --------------------------------------------------------
Cumulative Average Annual
Total Return* Total Return*
- --------------------------------------------------------
One Year +2.27% +2.27%
Five Years +33.26 +5.91
Life of Fund(dagger) +67.53 +6.73
- --------------------------------------------------------
(dagger) Inception date -- May 1, 1991
* Includes maximum sales charge of 2.75%
[GRAPH APPEARS HERE - NEED PLOT POINTS]
Years ended March 31,
1991(dagger) 1992 1993 1994 1995 1996 1997 1998 1999
$10,000
$16,753
$18,040
- --- Maryland Tax-Free Income Trust
___ Lehman Brothers Municipal Bond Index(1)
(1) The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment grade tax-exempt bond market.
Index returns are for the periods beginning April 30, 1991.
(dagger) Fund inception--May 1, 1991.
5
<PAGE>
Performance Information--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust
- ---------------------------------------------------------
Cumulative Average Annual
Total Return* Total Return*
- ---------------------------------------------------------
One Year +2.63% +2.63%
Five Years +34.40 +6.09
Life of Fund(dagger) +68.06 +7.00
- ---------------------------------------------------------
(dagger) Inception date -- August 1, 1991
* Includes maximum sales charge of 2.75%
[GRAPH APPEARS HERE - NEED PLOT POINTS]
Years ended March 31,
1991(dagger) 1992 1993 1994 1995 1996 1997 1998 1999
$10,000
$16,806
$17,683
- --- Pennsylvania Tax-Free Income Trust
___ Lehman Brothers Municipal Bond Index(1)
(1) The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment grade tax-exempt bond market.
Index returns are for the periods beginning July 31, 1991.
(dagger) Fund inception--August 1, 1991.
Tax-Free Intermediate-Term Income Trust
- ---------------------------------------------------------
Cumulative Average Annual
Total Return* Total Return*
- ---------------------------------------------------------
One Year +2.72% +2.72%
Five Years +28.36 +5.12
Life of Fund(dagger) +39.28 +5.32
- ---------------------------------------------------------
(dagger) Inception Date -- November 9, 1992
* Includes maximum sales charge of 2.00%
[GRAPH APPEARS HERE - NEED PLOT POINTS]
Years ended March 31,
1991(dagger) 1992 1993 1994 1995 1996 1997 1998 1999
$10,000
$13,928
$15,097
- --- Tax-Free Intermediate Trust
___ Lehman Brothers 7-Year Municipal Bond Index(1)
(1) The Lehman Brothers 7-Year Municipal Bond Index is a total return
performance benchmark for investment grade tax-exempt bonds with
maturities ranging from six to eight years. Index returns are for the
periods beginning October 31, 1992.
(dagger) Fund inception--November 9, 1992.
6
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
March 31, 1999
(Amounts in Thousands)
Maryland Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Municipal Bonds -- 95.6%
Annapolis (City of), Economic Development
Revenue (St. John's College Facility), Series 1998 5.50% 10/1/18 $1,000 $ 1,012
Annapolis (City of), Economic Development
Revenue (St. John's College Facility), Series 1998 5.50% 10/1/23 870 876
Anne Arundel County (Baltimore Gas & Electric
Project), PCR Refunding 6% 4/1/24 4,500 4,838
Anne Arundel County, Consolidated
Water and Sewer, GO 5% 9/1/16 1,000 1,008
Anne Arundel County, Consolidated
Water and Sewer, GO Refunding 5.30% 4/15/17 1,000 1,032
Baltimore City Water Utility Project
(Water Projects) Series A Refunding
(Pre-refunded 7/1/00) (MBIA insured) 6.50% 7/1/20 1,250 1,299(A)
Baltimore County, Consolidated Public
Improvement, GO (Pre-refunded 7/1/02) 6.125% 7/1/09 2,000 2,183(A)
Baltimore County, Consolidated Public
Improvement, GO 4.75% 7/1/18 3,150 3,091
Baltimore County, Nursing Home (Stella Maris)
Series A (Pre-refunded 3/1/01) 7.25% 3/1/11 890 966(A)
Baltimore County, Pension Funding, GO Refunding 5% 8/1/09 2,500 2,647
Baltimore, Maryland Revenue Refunding Waste
Water Project Series A (FGIC insured) 5% 7/1/22 1,550 1,558
Baltimore, Maryland Revenue Refunding Waste
Water Project Series A (FGIC insured) 5.50% 7/1/26 1,000 1,044
Calvert County, Maryland (Baltimore Gas &
Electric Project) PCR Refunding 5.55% 7/15/14 1,000 1,045
Carroll County, Consolidated Public
Improvement, GO 5.375% 11/1/20 1,395 1,440
Carroll County, Consolidated Public
Improvement, GO 5.375% 11/1/25 1,855 1,904
Charles County, GO (Pre-refunded 6/1/01) 6.60% 6/1/06 1,000 1,082(A)
Frederick County, GO Series 1990
(Pre-refunded 8/1/03) 6.625% 8/1/20 250 282(A)
Frederick County, Public Facility 1991
GO (Pre-refunded 5/1/01) 6.50% 5/1/07 650 700(A)
Harford County, GO (Pre-refunded 12/1/00) 6.40% 12/1/10 500 535(A)
Harford County, GO 5% 3/1/12 1,000 1,026
</TABLE>
7
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Howard County, Consolidated Public Improvement
GO Series A (Pre-refunded 2/15/00) 6.50% 2/15/11 $ 700 $ 720(A)
GOSeries A Refunding 5% 2/15/11 1,000 1,034
Howard County, Metropolitan District GORefunding
1998 Series A 5.50% 2/15/27 1,000 1,038
1998 Series A 4.75% 2/15/27 2,335 2,224
Series B 6% 8/15/19 1,500 1,574
Howard County, Public Improvement
GO Series B Refunding 0% 8/15/07 1,000 698(B)
Laurel (City of), Public Improvement GO Refunding
(Pre-refunded 7/1/01) (MBIA insured) 7% 7/1/09 250 273(A)
(Pre-refunded 7/1/01) (MBIA insured) 7% 7/1/11 1,000 1,093(A)
Maryland Community Development Administration
Multi-Family Insured Mortgage Series B 5.80% 5/15/26 1,500 1,556
Multi-Family Insured Mortgage Series G 7.10% 5/15/23 150 158
Single Family AMT
Second Series 6.65% 4/1/04 1,000 1,050
Sixth Series 7.125% 4/1/14 365 379
Fourth Series 7.45% 4/1/32 925 968
Single-Family Non-AMT Third Series 7.25% 4/1/27 670 702
Maryland Department of Transportation
Consolidated Transportation
Series 1991 (Pre-refunded 9/1/00) 6.25% 9/1/03 1,000 1,053(A)
Maryland Health and Higher Educational
Facilities Authority
Anne Arundel Medical Center Issue,
Series 1998 (FSAinsured) 5.125% 7/1/28 4,000 4,018
College of Notre Dame
(MBIA insured) 5.30% 10/1/18 465 489
College of Notre Dame
(MBIA insured) 4.65% 10/1/23 1,400 1,322
Francis Scott Key Medical Center
(Pre-refunded 7/1/00) (FGIC insured) 6.75% 7/1/23 1,500 1,592(A)
Francis Scott Key Medical Center Refunding
(FGIC insured) 5% 7/1/23 2,000 1,972
Francis Scott Key Medical Center Refunding 5.625% 7/1/25 1,000 1,031
Greater Baltimore Medical Center
(Pre-refunded 7/1/01) 6.75% 7/1/19 1,000 1,087(A)
Howard County General Hospital Refunding 5.50% 7/1/21 2,500 2,635
Johns Hopkins Hospital Series 1990 0% 7/1/19 4,000 1,415(B)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Maryland Health and Higher Educational
Facilities Authority--(Continued)
Johns Hopkins Medicine, Howard County
General Hospital, Acquisition Issue Series 1998
(MBIA insured) 5% 7/1/29 $1,300 $ 1,288
Johns Hopkins University Refunding 6% 7/1/10 500 569
Johns Hopkins University Series 1997 Refunding 5.625% 7/1/17 1,000 1,071
Kennedy Institute Series 1991
(Pre-refunded 7/1/01) 7.40% 7/1/11 630 692(A)
Kennedy Institute Series 1991
(Pre-refunded 7/1/01) 6.75% 7/1/22 1,000 1,067(A)
Kennedy Krieger Issue, Series 1997 Refunding 5.125% 7/1/22 1,000 949
Loyola College Series A Refunding
(MBIA insured) 5.375% 10/1/26 3,750 3,861
Maryland Institute, College of Art Issue
(FSA insured) 5% 6/1/29 2,000 1,981
Medlantic/Helix Issue, Revenue
Bonds Series 1998B (AMBAC insured) 5.25% 8/15/38 3,000 3,095
Memorial Hospital at Easton Issue,
Revenue Bonds (MBIA insured) 5.25% 7/1/13 500 521
Union Memorial Hospital Series A Refunding
(MBIA insured) 6.75% 7/1/21 390 424
Union Memorial Hospital Series A Refunding
(MBIA insured) 6.75% 7/1/11 65 70
Union Memorial Hospital Series A and B
(Pre-refunded 7/1/01) (MBIA insured) 6.75% 7/1/11 535 581(A)
Union Memorial Hospital Series A and B
(Pre-refunded 7/1/01) (MBIA insured) 6.75% 7/1/21 1,510 1,641(A)
University of Maryland Medical System
Series 1993 Refunding (FGIC insured) 5.375% 7/1/13 2,000 2,099
Upper Chesapeake Hospital Issue Series A
(FSAinsured) 5.50% 1/1/20 1,250 1,301
Maryland National Capital Park and Planning
Commission (Prince George's County) Series L2
(Pre-refunded 7/1/02) 6% 7/1/05 500 543(A)
Maryland Stadium Authority Sports Facilities
Lease Revenue (AMBACinsured) 5.75% 3/1/18 1,000 1,064
Maryland Stadium Authority Sports Facilities
Lease Revenue AMT Series D 7.50% 12/15/10 4,000 4,184
Maryland Stadium Authority Sports Facilities
Lease Revenue AMT Series D 7.60% 12/15/19 2,255 2,363
Maryland State and Local Facilities Loan, GO,
Second Series 5% 8/1/11 3,000 3,109
Maryland Transportation Authority Series 1985
Refunding 5.75% 7/1/15 5,250 5,472
</TABLE>
9
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Maryland Water Quality Financing Administration,
Revolving Loan Fund Revenue Series 1993A 5.40% 9/1/12 $1,500 $ 1,575
Mayor and City Council of Baltimore (FGIC insured)
Baltimore City Parking Revenue
(Pre-refunded 7/1/02) 6.25% 7/1/21 500 548(A)
Baltimore City Water Projects Refunding 5% 7/1/24 5,600 5,624
Mayor and City Council of Baltimore (FGIC insured)
Capital Appreciation, GOSeries A
(Pre-refunded 10/15/05) 0% 10/15/11 1,060 560(A,B)
Capital Appreciation GOSeries A 0% 10/15/11 940 488(B)
Montgomery County, Consolidated Public
Improvement, GO Series A Refunding 5.80% 7/1/07 2,750 3,064
Montgomery County, Consolidated Public
Improvement, GO Series A Refunding 0% 7/1/10 3,000 1,801(B)
Montgomery County, HOC Single-Family Series A 6.80% 7/1/17 910 952
Montgomery County, Parking Revenue
(Silver Spring Parking Lot) 1992 Series A Refunding
(FGIC insured) 6.25% 6/1/07 2,000 2,174
Montgomery County (Potomac Electric Project),
1994 Series PCR Refunding 5.375% 2/15/24 1,000 1,018
Morgan State University Academic and Auxiliary
Fees Revenue Series A (Pre-refunded 7/1/00)
(MBIA insured) 7% 7/1/20 1,000 1,065(A)
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue (Montgomery County
Resource Recovery Project) AMT Series 1993A 6% 7/1/07 1,000 1,093
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue (Montgomery County
Resource Recovery Project) AMT Series 1993A 6.30% 7/1/16 3,000 3,208
Port Facilities Revenue (Consolidated Coal Sales
Co. Project) Series A & B 6.50% 10/1/11 6,000 6,553
Prince George's County, Consolidated Public
Improvement, GORefunding 6.70% 7/1/04 585 632
Prince George's County, Consolidated Public
Improvement, GO Refunding 6.75% 7/1/11 585 632
Prince George's County (Potomac Electric Project)
1993 Series PCR Refunding 6.375% 1/15/23 2,250 2,446
Prince George's County, Solid Waste
Management System Revenue
Series 1990 (Pre-refunded 6/30/00) 6.75% 6/30/02 250 265(A)
Series 1990 (Pre-refunded 6/30/00) 6.90% 6/30/06 750 798(A)
Series 1993 Refunding 5.25% 6/15/13 1,000 1,014
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
State of Maryland, GO 6.70% 7/15/02 $ 500 $ 523
State of Maryland, GO (Pre-refunded 3/1/00) 6.70% 3/1/04 1,500 1,570(A)
State of Maryland, GO 5.40% 6/1/07 2,000 2,131
Talbot County, Bank Qualified, GO
(Pre-refunded 5/1/01) 6.70% 5/1/10 500 541(A)
Talbot County, Bank Qualified, GO
(Pre-refunded 5/1/01) 6.70% 5/1/11 415 449(A)
University of Maryland
(Auxiliary Facilities and Tuition Revenue)
Series B (Pre-refunded 10/1/02) 6.375% 4/1/09 1,000 1,105(A)
Series A 5.60% 4/1/15 1,000 1,058
Series A Refunding 5.125% 4/1/17 2,000 2,031
1999 Series A 4.50% 10/1/19 6,290 5,913
Washington County, Maryland (Water &
Sewer Project) GO Refunding (FGICinsured) 0% 1/1/17 385 158(B)
Washington Suburban Sanitary District
(Pre-refunded 6/1/02) 6.10% 6/1/07 1,000 1,088(A)
Washington Suburban Sanitary District 5.50% 6/1/13 1,000 1,066
Washington Suburban Sanitary District
(Pre-refunded 6/1/01) 6.90% 6/1/13 400 435(A)
Washington Suburban Sanitary DistrictRefunding 5% 6/1/10 1,000 1,053
Washington Suburban Sanitary District Refunding 5.25% 6/1/11 1,000 1,051
Washington Suburban Sanitary District Refunding 5.25% 6/1/15 1,000 1,017
Washington Suburban Sanitary District Refunding 5.25% 6/1/16 1,000 1,055
Washington Suburban Sanitary District Refunding 5.75% 6/1/17 2,000 2,221
Wicomico County, Maryland Consolidated Public
Improvement and Refunding Bonds
of 1998, GO (FGIC insured) 5% 2/1/13 1,500 1,542
Worcester County Sanitary District, GO
(Pre-refunded 5/1/01) 6.75% 5/1/15 115 124(A)
----------
Total Municipal Bonds (Identified Cost-- $149,234) 159,235
--------------------------------------------------------------------------------------------------------------
Variable Rate Demand Obligations(C) -- 2.9%
Allegheny County Hospital Development
Authority Health Center Revenue Bonds
(Presbyterian-University Health System, Inc.)
Series 1990 B&D 3.15% 4/1/99 890 890
Jackson County, Mississippi Port
Facility Refunding Revenue Bonds
(Chevron U.S.A. Inc. Project) Series 1993 3.15% 4/1/99 500 500
</TABLE>
11
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Kentucky Economic Development Finance
Authority Hospital Revenue Bonds (Baptist
Healthcare System Obligated Group) Series 1999C 3.30% 4/1/99 $ 600 $ 600
Lincoln County, Wyoming PCR Bonds
(Exxon Project) Series 1984D 3.30% 4/1/99 700 700
Southwest Higher Education Authority
Incorporated Texas Revenue (SMU University) 3.20% 4/1/99 2,100 2,100
----------
Total Variable Rate Demand Obligations
(Identified Cost-- $4,790) 4,790
--------------------------------------------------------------------------------------------------------------
Total Investments-- 98.5% (Identified Cost-- $154,024) 164,025
Other Assets Less Liabilities-- 1.5% 2,433
----------
Net assets consisting of:
Accumulated paid-in capital applicable to
10,154 shares outstanding $155,890
Undistributed net realized gain on investments 567
Unrealized appreciation of investments 10,001
--------
Net assets-- 100.0% $166,458
========
Net asset value, redemption price and maximum offering price per share:(D) $16.39
======
--------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Pre-refunded bond -- Bonds are referred to as pre-refunded when the issue
has been advance refunded by a subsequent issue. The original issue is
usually escrowed with U.S. Treasury securities in an amount sufficient to
pay the interest, principal and call premium, if any, to the earliest call
date. On the call date, the bond "matures." The pre-refunded date is used
in determining weighted average portfolio maturity.
(B) Zero-coupon bond -- A bond with no periodic interest payments which is
sold at such a discount as to produce a current yield to maturity.
(C) The rate shown is the rate as of March 31, 1999, and the maturity shown is
the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
(D) Sales charges are being waived for the period November 3, 1997, to July
31, 1999. If the sales charge was in effect, the maximum offering price
per share at March 31, 1999, would have been $16.85.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
12
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
March 31, 1999
(Amounts in Thousands)
Pennsylvania Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Municipal Bonds -- 94.2%
Allegheny County, Airport Revenue
1992-B AMT (FSA insured) 6.625% 1/1/22 $1,000 $ 1,079
Allegheny County, Baldwin-Whitehall School
District, GO Series 1992-A (Pre-refunded 8/15/02)
(FGIC insured) 6.60% 8/15/10 1,000 1,092(A)
Allegheny County, Pennsylvania Higher Education
Duquesne University Project Refunding
(AMBAC insured) 5.125% 3/1/13 1,000 1,035
Allegheny County, West Jefferson Hills School
District, GO (Pre-refunded 2/1/01) (FGIC insured) 7.10% 2/1/11 1,000 1,062(A)
Allegheny County Hospital Development Authority,
Children's Hospital Refunding (MBIA insured) 6.875% 7/1/14 1,000 1,039
Allegheny County Hospital Development Authority,
Presbyterian University Health System, Inc.
Series 1992-B Refunding (MBIA insured) 6% 11/1/23 1,250 1,350
Beaver County, IDA Ohio Edison Company
PCR Refunding (FGIC insured) 7% 6/1/21 1,000 1,079
Berks County, Pennsylvania, GO Series
1995 Refunding (FGIC insured) 5.85% 11/15/18 1,000 1,062
Bucks County, Council Rock School District, GO
(Pre-refunded 3/1/01) (FGIC insured) 6.75% 3/1/11 250 265(A)
Chester County Health and Education Facilities
Authority, Jefferson Health SystemRevenue
Bonds Series 1997 B 5.375% 5/15/27 1,500 1,492
Commonwealth of Pennsylvania, GO
First Series 6.125% 9/15/03 1,000 1,077
Second Series (Pre-refunded 11/1/01) 6.50% 11/1/09 1,000 1,085(A)
Deer Lakes School District, Pennsylvania, GO
(MBIA insured) 6.45% 1/15/19 1,750 1,935
Delaware County Authority, University Revenue,
Villanova University (Pre-refunded 8/1/01)
(MBIA insured) 6.85% 8/1/11 500 536(A)
Delaware County Authority, University Revenue,
Villanova University (MBIA insured) 5.50% 8/1/23 2,000 2,060
Delaware County, GO (Pre-refunded 11/15/02) 6% 11/15/22 1,000 1,076(A)
Delaware County, GO Refunding 6% 11/15/22 220 233
Delaware River Port Authority (FGIC insured) 5.50% 1/1/26 1,000 1,047
</TABLE>
13
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Erie County, Pennsylvania Sewer Authority,
Sewer Revenue Bonds Series 1997
(Pre-refunded 6/1/07) (AMBAC insured) 5.625% 6/1/17 $2,000 $ 2,195(A)
Lehigh County, Pennsylvania, Power & Light
Company Project 1994 Series A, IDA,
PCR Refunding (MBIA insured) 5.50% 2/15/27 1,000 1,033
Lower Merion School District
Montgomery County, Pennsylvania
GO Bonds, Series 1998 5% 5/15/23 1,000 986
Montgomery County, GO Series 1997 5.35% 9/15/17 1,000 1,027
Montgomery County Higher Education and Health
Authority, Saint Joseph's University Revenue,
Series 1992 Refunding (Connie Lee insured) 6.25% 12/15/04 500 546
Montgomery County, IDA Philadelphia Electric
Company, Series 1991-B PCR Refunding
(MBIA insured) 6.70% 12/1/21 1,500 1,623
Montgomery County, Upper Gwynedd-Towamencin
Guaranteed Sewer Revenue, Series 1991-A
(MBIA insured) 6.75% 10/15/06 250 268
Montgomery Township Municipal Sewer Authority,
Guaranteed Sewer Revenue, Series 1991-A
(MBIA insured) 6.70% 5/15/21 250 259
Northampton County Higher Education Authority,
College Revenue Bonds (Lafayette College Project),
Series 1997 (MBIA insured) 5% 11/1/27 1,000 976
Pennsylvania Higher Education Assistance Agency,
Student Loan Revenue AMT, Series 1991-C
(AMBAC insured) 7.15% 9/1/21 1,000 1,083
Pennsylvania Higher Educational Facilities Authority,
Bryn Mawr College Revenue Bonds (MBIA insured) 5.625% 12/1/27 500 526
Pennsylvania Higher Educational Facilities Authority,
Drexel University Revenue Bonds, Series 1998
(MBIA insured) 4.80% 5/1/28 2,000 1,901
Pennsylvania Higher Educational Facilities Authority,
Temple University Revenue (MBIA insured)
First Series (Pre-refunded 4/1/01) 6.50% 4/1/21 250 269(A)
First Series 5% 4/1/29 1,000 975
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Pennsylvania Higher Educational Facilities Authority,
University Revenue, Series H (AMBAC insured) 5.375% 6/15/18 $1,000 $ 1,016
Pennsylvania Higher Educational Facilities Authority,
University Revenue, University of Pennsylvania,
Series 1996-A Refunding 5.75% 1/1/22 1,000 1,030
Pennsylvania Economic Development Revenue IDA
Series 1991-A (Pre-refunded 7/1/01) 7% 1/1/11 1,000 1,092(A)
Series 1994-A Refunding (AMBAC insured) 5.50% 1/1/14 2,525 2,647
Pennsylvania Housing Finance Agency, Rental
Housing (FNMA insured)
Series 1993-C 5.80% 7/1/22 1,000 1,043
Series 1992-C 6.50% 7/1/23 750 800
Pennsylvania Housing Finance Agency, Single-
Family Mortgage
Series 1991-32 Refunding 7.15% 4/1/15 435 459
Series 1992-33 6.90% 4/1/17 320 338
Pennsylvania Infrastructure Investment Authority,
Revenue Series 1990-A (Pre-refunded 9/1/99) 7.15% 9/1/10 500 518(A)
Pennsylvania Intergovernmental Co-op Authority
(Pre-refunded 6/15/03) (MBIA insured) 5.60% 6/15/15 1,000 1,069(A)
Pennsylvania Intergovernmental Co-op Authority
(Pre-refunded 6/15/03) (MBIA insured) 5.60% 6/15/16 2,000 2,139(A)
Pennsylvania State University Refunding 5.50% 8/15/16 1,000 1,036
Pennsylvania State University Series A Refunding 5.10% 3/1/18 1,500 1,495
Pennsylvania Turnpike Commission, Oil
Franchise Tax Subordinated Revenue Bonds,
Series B of 1998 (AMBAC insured) 4.75% 12/1/27 2,000 1,886
Pennsylvania Turnpike Commission Revenue
Series N 5.50% 12/1/17 1,000 1,022
Philadelphia Gas Works Series B (MBIA insured) 7% 5/15/20 500 609
Philadelphia Hospitals and Higher Education
Facilities Authority, Hospital Revenue Refunding,
Children's Hospital Series 1993-A 5% 2/15/21 1,000 942
Philadelphia Municipal Authority, Justice Lease
Revenue Series 1991-B
(Pre-refunded 11/15/01) (FGIC insured) 7% 11/15/04 500 551(A)
Philadelphia Municipal Authority, Justice Lease
Revenue Series 1991-B
(Pre-refunded 11/15/01) (FGIC insured) 7.10% 11/15/05 500 553(A)
</TABLE>
15
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Philadelphia Water and Wastewater
Refunding Series 1998 (AMBAC insured) 5.25% 12/15/12 $1,000 $ 1,053
Philadelphia Water and Wastewater Revenue
(MBIA insured) 5.60% 8/1/18 2,000 2,087
Sayre, Pennsylvania Healthcare Revenue Volunteer
Hospital Authority, Guthrie Healthcare System
(AMBAC insured) 7.20% 12/1/20 500 547
Schuylkill County, Pennsylvania,
Charity Obligation Group IDA,
Series A 5% 11/1/28 500 474
Somerset County General Authority, Commonwealth
Lease Revenue
(Pre-refunded 10/15/01) (FGIC insured) 7% 10/15/13 500 541(A)
Swarthmore Borough Authority, Swarthmore College
Refunding Revenue Series 1992
(Pre-refunded 9/15/02) 6% 9/15/12 180 196(A)
Unrefunded balance 6% 9/15/12 820 885
Swarthmore Borough Authority, Swarthmore College
Refunding Revenue Series 1992
(Pre-refunded 9/15/02) 6% 9/15/20 370 404(A)
Unrefunded balance 6% 9/15/20 1,630 1,760
Union County, Pennsylvania Higher
Educational Financing, Bucknell
University (MBIA insured) 4.50% 4/1/18 1,000 940
University of Pittsburgh
Commonwealth University
Capital Projects (FGIC insured) 5.125% 6/1/22 1,000 996
University of Pittsburgh Series 1992-A
(Pre-refunded 6/1/02) (MBIA insured) 6.125% 6/1/21 650 708(A)
University of Pittsburgh Series 1992-A
(MBIA insured) 6.125% 6/1/21 350 378
University of Pittsburgh Series 1997-B Refunding
(MBIA insured) 5% 6/1/21 1,000 983
Valley View, Pennsylvania School District, GO
Series A Refunding (FGIC insured) 5% 11/15/21 1,300 1,277
Washington County Hospital Authority,
Shadyside Hospital Project
Series 1992 Refunding (AMBAC insured) 6% 12/15/18 1,000 1,082
Westmoreland County GO (AMBAC insured) 0% 8/1/13 2,000 1,008(B)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Westmoreland County GO (AMBAC insured) 0% 8/1/14 $2,475 $ 1,178(B)
Wissahickon Pennsylvania School District GO 4.85% 5/15/13 1,000 1,003
--------
Total Municipal Bonds (Identified Cost-- $66,610) 71,016
---------------------------------------------------------------------------------------------------------------------
Variable Rate Demand ObligationsC -- 4.7%
Allegheny County Hospital Development Authority
Presbyterian Hospital Series C and D 3.15% 4/1/99 1,200 1,200
Pennsylvania Higher Educational Facilities Authority
Carnegie Mellon University Series 1995 B 3.05% 4/1/99 1,000 1,000
Philadelphia, Pennsylvania Hospitals and Higher
Education Children Hospital Project Series A 3.05% 4/1/99 1,300 1,300
--------
Total Variable Rate Demand Obligations
(Identified Cost-- $3,500) 3,500
---------------------------------------------------------------------------------------------------------------------
Total Investments-- 98.9% (Identified Cost-- $70,110) 74,516
Other Assets Less Liabilities-- 1.1% 854
--------
Net assets consisting of:
Accumulated paid-in capital applicable to:
4,542 primary shares outstanding $70,619
17 navigator shares outstanding 276
Undistributed net realized gain on investments 69
Unrealized appreciation of investments 4,406
-------
Net assets-- 100.0% $75,370
=======
Net asset value, redemption price and maximum offering price per share:(D)
Primary Class $16.53
======
Navigator Class $16.53
======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Pre-refunded bond -- Bonds are referred to as pre-refunded when the issue
has been advance refunded by a subsequent issue. The original issue is
usually escrowed with U.S. Treasury securities in an amount sufficient to
pay the interest, principal and call premium, if any, to the earliest call
date. On the call date, the bond "matures." The pre-refunded date is used
in determining weighted average portfolio maturity.
(B) Zero-coupon bond -- A bond with no periodic interest payments which is
sold at such a discount as to produce a current yield to maturity.
(C) The rate shown is the rate as of March 31, 1999, and the maturity shown is
the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
(D) Sales charges are being waived for the period November 3, 1997, to July
31, 1999. If the sales charge was in effect, the maximum offering price
per share at March 31, 1999, would have been $17.00.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
17
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
March 31, 1999
(Amounts in Thousands)
Tax-Free Intermediate-Term Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Municipal Bonds -- 95.1%
Alaska -- 2.8%
Anchorage GO Series A(AMBAC insured) 5.30% 8/1/10 $1,075 $ 1,123
North Slope Borough GO, Capital Appreciation
Series 1998 A (MBIA insured) 0% 6/30/09 1,000 623(B)
-------
1,746
-------
Arizona -- 4.1%
Arizona Transportation Board Subordinated
Highway Revenue, Series 1992 A 6% 7/1/00 500 516
Salt River Project Agricultural Improvement
and Power District, Electric System
Refunding Revenue, 1993 Series A 5.30% 1/1/03 1,000 1,052
Scottsdale Street and Highway User
Revenue Refunding, Series 1993 5% 7/1/02 1,000 1,040
-------
2,608
-------
Connecticut -- 1.7%
State of Connecticut Special Tax Obligation,
Transportation Infrastructure, 1990 Series A
(Pre-refunded 6/1/01) 7.10% 6/1/04 1,000 1,083(A)
-------
Florida -- 6.0%
Jacksonville, Florida Electric Authority Revenue
Refunding (St. John's River Issue) Series 2-13 5.10% 10/1/10 500 520
Northwest Florida Water Management District
Land Acquisition Revenue Refunding,
Series 1992 (FGIC insured) 5.50% 4/1/02 1,000 1,052
Seminole County, Florida Water & Sewer Revenue
Refunding (MBIA insured) 6% 10/1/12 1,000 1,138
State Board of Education Capital Outlay
Series 1996 A 5.60% 1/1/08 1,000 1,075
-------
3,785
-------
Georgia -- 2.9%
State of Georgia GO Bonds
Series 1997 C 6.25% 8/1/10 1,000 1,164
State of Georgia GO Bonds
Series 1997 C 2.25% 8/1/17 1,000 687
-------
1,851
-------
Illinois -- 3.6%
Illinois Regional Transportation Authority,
Refunding (MBIA insured) 5.40% 6/1/15 1,000 1,032
State of Illinois Sales Tax Revenue, Series O 5.90% 6/15/01 1,220 1,280
-------
2,312
-------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Kentucky -- 1.7%
Turnpike Authority of Kentucky, Economic
Development Road Revenue Refunding
(Revitalization Projects)
Series 1993 (AMBAC insured) 5.30% 7/1/04 $1,000 $ 1,065
-------
Louisiana -- 1.7%
City of New Orleans Audubon Park Commission
Aquarium Refunding, Series 1993 (FGIC insured) 6% 10/1/08 1,000 1,097
-------
Maine -- 1.7%
Maine Municipal Bond Bank GORefunding 1993
Series A Refunding 5.20% 11/1/05 1,000 1,061
-------
Maryland -- 10.7%
Baltimore City, Maryland GO(MBIAinsured) 7% 10/15/10 1,000 1,231
Maryland Department of Transportation Consolidated
Transportation Refunding, Series 1991 6% 9/1/00 1,000 1,037
Maryland Health and Higher Educational Facilities
Authority Refunding Revenue, Kennedy Krieger
Issue 5.20% 7/1/09 400 416
Maryland Health and Higher Educational Facilities
Authority Refunding Revenue, Kennedy Krieger
Issue 5.25% 7/1/10 400 414
Maryland State andLocal Facilities Loan GO,
Second Series 5% 8/1/11 1,000 1,036
Maryland Transportation Authority, Transportation
Facilities Projects Revenue, Series 1992 5.70% 7/1/05 1,000 1,093
Mayor and City Council of Baltimore
GO, Consolidated Public Improvement
Refunding 1995 Series A (FGIC insured) 0% 10/15/06 750 527(B)
Northeast Maryland Waste Disposal Authority Solid
Waste Revenue (Montgomery County Resource
Recovery Project) Series 1993A, AMT 5.60% 7/1/02 1,000 1,045
-------
6,799
-------
Michigan -- 1.8%
Williamston Michigan Community School
GO (MBIA insured) 6.25% 5/1/09 1,000 1,144
-------
Nebraska -- 1.7%
Nebraska Public Power District 5.70% 1/1/04 1,000 1,069
-------
</TABLE>
19
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Tax-Free Intermediate-Term Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Nevada -- 2.7%
Clark County, Nevada GO (FGIC insured) 5.50% 6/1/11 $1,155 $ 1,228
State of Nevada GO LT (Nevada Municipal
Bond Bank Refunding Project No. 4)
Series 1989 B 6.70% 2/1/01 500 515
-------
1,743
-------
New Hampshire -- 1.6%
New Hampshire Municipal Bond Bank GO
Refunding, 1991 Series H 5.70% 2/15/01 1,000 1,040
-------
New Jersey -- 3.3%
New Jersey Turnpike Authority, Turnpike
Revenue, Series 1991 C Refunding
(AMBAC insured) 6.40% 1/1/07 2,000 2,115
-------
North Carolina -- 1.6%
Charlotte Water and Sewer GO 4.75% 2/1/13 1,000 1,005
-------
Ohio -- 3.4%
Franklin County, Ohio GO LT Refunding 5.50% 12/1/11 2,000 2,154
-------
Pennsylvania -- 7.4%
City of Philadelphia, Pennsylvania
Water and Wastewater Revenue
Refunding Bonds, Series 1998 (AMBAC insured) 5.25% 12/15/12 1,000 1,053
Lower Merion School District
Montgomery County, Pennsylvania
GO Series 1998 5% 5/15/08 500 527
Northampton County, Pennsylvania Higher
Education, Lehigh University, Series 1998 5.25% 11/15/09 1,000 1,068
Pennsylvania Higher Education Facility,
University of Pennsylvania Montgomery County
Health Systems Revenue Bonds,
Series 1999A (FSA insured) 5% 8/1/09 2,000 2,057
-------
4,705
-------
South Carolina -- 3.4%
Berkeley County Water and Sewer Revenue
Refunding and Improvement (MBIA insured) 6.50% 6/1/06 1,000 1,076
South Carolina Public Service Authority Revenue,
Series B Refunding 6.70% 7/1/02 1,000 1,079
-------
2,155
-------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Tennessee -- 3.3%
Metropolitan Government Nashville and
Davidson County, Tennessee Water & Sewer
Refunding (MBIA insured) 5.50% 1/1/13 $1,000 $ 1,062
State of Tennessee GO, 1994 Series A Refunding 5.25% 3/1/02 1,000 1,044
-------
2,106
-------
Texas -- 12.1%
City of Austin Combined Utility Systems Revenue
Refunding, Series 1992 A (MBIA insured) 6% 11/15/04 1,000 1,087
City of Houston GO
Revenue Refunding, Series C 5.625% 4/1/10 1,000 1,070
City of Houston Water and Sewer System
Junior Lien Revenue Refunding, Series 1992 C
(MBIA insured) 5.40% 12/1/01 1,000 1,045
Dallas, Texas GO 4.50% 2/15/13 2,000 1,948
Irving, Texas Independent School District
(PSFG insured) 0% 2/15/17 1,190 477(B)
Texas Public Finance Authority, GO Refunding
(Superconducting Super Collider Project)
Series 1992 C (FGIC insured) 0% 4/1/02 1,000 890(B)
United Independent School District (Webb County,
Texas) Unlimited Tax School Building Bonds,
Series 1995 (PSFG insured) 7.10% 8/15/06 1,000 1,180
-------
7,697
-------
Vermont -- 2.3%
State of Vermont, GO 1990 Series A
(Pre-refunded 2/1/00) 6.75% 2/1/03 1,400 1,469(A)
-------
Virginia -- 11.7%
Commonwealth of Virginia Transportation Board,
Transportation Contract Revenue Refunding
Series 1992 (Route 28 Project) 5.75% 4/1/00 1,000 1,026
Series 1992 (Route 28 Project) 6% 4/1/06 1,000 1,074
Fairfax County Public Improvement
Series 1992 C Refunding 5.50% 10/1/03 2,000 2,041
Henrico County GO Public Improvement Refunding
Series 1993 5.25% 1/15/09 1,100 1,169
Virginia State Public Building Authority
Building Revenue 5.20% 8/1/14 1,000 1,026
Revenue Refunding Series 1992 B 5.625% 8/1/02 1,000 1,060
-------
7,396
-------
</TABLE>
21
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Tax-Free Intermediate-Term Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
---------------------------------------------------------------------------------------------------------------------
<S><C>
Washington -- 1.9%
Washington State Motor Vehicle Fuel Tax Revenue,
Series D 6.50% 1/1/07 $1,045 $ 1,196
-------
Total Municipal Bonds (Identified Cost-- $58,118) 60,401
--------------------------------------------------------------------------------------------------------------------
Variable Rate Demand ObligationsC-- 3.6%
Allegheny County Hospital Development Authority
(Presbyterian University Hospital)
Hospital Revenue Bonds, 1988 Series B2 3.15% 4/1/99 455 455
Carlton, Wisconsin PCR Refunding Bonds
(Wisconsin Power and Light Company Projects)
Series B 3.10% 4/1/99 300 300
District of Columbia Multimodal Revenue Bonds
Medlantic/Helix Issue, Series 1998A 3.10% 4/1/99 500 500
Hospitals and Higher Educational Facilities
Authority of Philadelphia, Hospital Revenue Bonds
(The Children's Hospital of Philadelphia Project)
Series A of 1996 3.05% 4/1/99 300 300
Kentucky Economic Development Finance
Authority Hospital Revenue Bonds,Series 1999
(Baptist Healthcare System Obligated Group) 3.30% 4/1/99 300 300
Lake Charles (City of) Harbor & Terminal
District Port Facilities Revenue Bonds,
Series 1984 3.20% 4/1/99 200 200
Lincoln County, Wyoming
Pollution Control Revenue Bonds
(Exxon Project) Series 1984C 3.30% 4/1/99 200 200
-------
Total Variable Rate Demand Obligations
(Identified Cost--$2,255) 2,255
--------------------------------------------------------------------------------------------------------------------
Total Investments-- 98.7% (Identified Cost-- $60,373) 62,656
Other Assets Less Liabilities--1.3% 846
-------
Net assets-- 100.0% $63,502
=======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
<S><C>
Net assets consisting of:
Accumulated paid-in capital applicable to
4,049 shares outstanding $61,260
Accumulated net realized loss on investments (41)
Unrealized appreciation of investments 2,283
-------
Net assets-- 100.0% $63,502
=======
Net asset value, redemption price and maximum offering price per share:(D) $15.68
======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Pre-refunded bond -- Bonds are referred to as pre-refunded when the issue
has been advance refunded by a subsequent issue. The original issue is
usually escrowed with U.S. Treasury securities in an amount sufficient to
pay the interest, principal and call premium, if any, to the earliest call
date. On the call date, the bond "matures." The pre-refunded date is used
in determining weighted average portfolio maturity.
(B) Zero-coupon bond -- A bond with no periodic interest payments which is
sold at such a discount as to produce a current yield to maturity.
(C) The rate shown is the rate as of March 31, 1999, and the maturity shown is
the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
(D) Sales charges are being waived for the period August 1, 1995, to July 31,
1999. If the sales charge was in effect, the maximum offering price per
share at March 31, 1999, would have been $16.00.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
23
<PAGE>
Sector Diversification
Legg Mason Tax-Free Income Fund
March 31, 1999 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
------------------ ------------------ --------------------
% of Market % of Market % of Market
Net Assets Value Net Assets Value Net Assets Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Education Revenue 12.1 $ 20,184 23.2 $17,508 1.7 $ 1,068
Escrowed -- -- 6.3 4,730 -- --
General Obligation--Local 16.2 27,033 3.1 2,323 33.3 21,159
General Obligation--School -- -- 4.3 3,267 -- --
General Obligation--State 3.4 5,763 1.4 1,077 11.2 7,093
Health Care and Hospital Revenue 12.5 20,816 10.6 7,955 4.5 2,887
Housing Revenue 3.5 5,766 3.5 2,641 -- --
Lease Revenue 4.6 7,611 -- -- 3.3 2,086
Other -- -- -- -- 2.0 1,280
Parking Revenue 1.3 2,174 -- -- -- --
Port Facilities Revenue 3.9 6,553 -- -- -- --
Pre-Refunded Bonds 15.6 25,937 20.4 15,351 4.0 2,552
Small Business Administration
Revenue -- -- 3.5 2,646 -- --
Solid Waste Revenue 3.2 5,315 -- -- -- --
Student Loan Revenue -- -- 1.4 1,083 -- --
Transportation Revenue 3.3 5,472 6.7 5,034 15.7 9,997
Utility 5.6 9,347 5.0 3,735 7.6 4,808
Water and Sewer Revenue 10.4 17,264 4.8 3,666 11.8 7,471
Short-Term Investments 2.9 4,790 4.7 3,500 3.6 2,255
Other Assets Less Liabilities 1.5 2,433 1.1 854 1.3 846
----- -------- ----- ------- ----- -------
100.0 $166,458 100.0 $75,370 100.0 $63,502
===== ======== ===== ======= ===== =======
</TABLE>
-------------------------------------------------
Guide to Investment Abbreviations
Legg Mason Tax-Free Income Fund
AMBAC AMBAC Indemnity Corporation
AMT Alternative Minimum Tax
CONNIE LEE Connie Lee Insurance Company
FNMA Fannie Mae
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
GO General Obligation
HOC Housing Opportunities Commission
IDA Industrial Development Authority
LT Limited Tax
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
PSFG Permanent School Fund Guaranty
24
<PAGE>
Statements of Operations
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended 3/31/99
---------------------------------------------------------------------------------------------------------------------
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
---------------------------------------------------------------------------------------------------------------------
<S><C>
Investment Income:
Interest $ 8,726 $ 3,920 $ 2,998
------- ------- -------
Expenses:
Investment advisory fee 887 391 334
Distribution and service fees 403 177 152
Transfer agent and shareholder servicing expense 46 22 15
Audit and legal fees 49 26 30
Custodian fee 95 73 67
Registration fees 8 6 14
Reports to shareholders 17 7 6
Trustees' fees 5 5 5
Other expenses 7 3 2
------- ------- -------
1,517 710 625
Less: Fees waived (384) (213) (197)
Compensating balance credits (5) (3) (3)
------- ------- -------
Total expenses, net of waivers and compensating
balance credits 1,128 494 425
------- ------- -------
Net Investment Income 7,598 3,426 2,573
------- ------- -------
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on investments 779 171 52
Change in unrealized appreciation (depreciation) of investments (218) 198 253
------- ------- -------
Net Realized and Unrealized Gain (Loss) on Investments 561 369 305
---------------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $ 8,159 $ 3,795 $ 2,878
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
25
<PAGE>
Statements of Changes in Net Assets
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
<TABLE>
<CAPTION>
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
---------------------------------------------------------------------
Years Ended Years Ended Years Ended
3/31/99 3/31/98 3/31/99 3/31/98 3/31/99 3/31/98
---------------------------------------------------------------------------------------------------------------------
<S><C>
Change in Net Assets:
Net investment income $ 7,598 $ 7,463 $ 3,426 $ 3,318 $ 2,573 $ 2,529
Net realized gain (loss) on investments 779 957 171 213 52 140
Change in unrealized appreciation
(depreciation) of investments (218) 4,439 198 2,681 253 1,295
---------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 8,159 12,859 3,795 6,212 2,878 3,964
Distributions to shareholders:
From net investment income:
Primary Class (7,598) (7,463) (3,413) (3,318) (2,573) (2,529)
Navigator Class NA NA (13) Nil NA NA
From net realized gain on investments:
Primary Class (519) (1,004) (189) (103) (23) NA
Navigator Class NA NA (1) NA NA NA
Change in net assets from Fund share transactions:
Primary Class 11,948 4,102 6,867 382 3,965 3,084
Navigator Class NA NA 186 90 NA NA
---------------------------------------------------------------------------------------------------------------------
Change in net assets 11,990 8,494 7,232 3,263 4,247 4,519
Net Assets:
Beginning of year 154,468 145,974 68,138 64,875 59,255 54,736
---------------------------------------------------------------------------------------------------------------------
End of year $ 166,458 $ 154,468 $ 75,370 $ 68,138 $ 63,502 $ 59,255
---------------------------------------------------------------------------------------------------------------------
</TABLE>
NA Not applicable.
See notes to financial statements.
26
<PAGE>
Financial Highlights
Legg Mason Tax-Free Income Fund
Contained below is per share operating performance data for a share of
beneficial interest outstanding, total investment return, ratios to average net
assets and other supplemental data. This information has been derived from
information provided in the financial statements.
<TABLE>
<CAPTION>
Investment Operations Distributions
--------------------------------------- --------------------------------------
From
Net Asset Net Net Realized Total From Net Net Asset
Value, Investment and Unrealized From Net Realized Value,
Beginning Income Gain (Loss) on Investment Investment Gain on Total End of
of Year (Loss) Investments Operations Income Investments Distributions Year
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Maryland Tax-Free Income Trust
-- Primary Class
Years Ended Mar. 31,
1999 $16.39 $.78(D) $ .05 $ .83 $(.78) $(.05) $(.83) $16.39
1998 15.91 .81(D) .59 1.40 (.81) (.11) (.92) 16.39
1997 16.07 .83(D) (.09) .74 (.83) (.07) (.90) 15.91
1996 15.87 .86(D) .25 1.11 (.86) (.05) (.91) 16.07
1995 15.69 .83(D) .18 1.01 (.83) -- (.83) 15.87
Pennsylvania Tax-Free Income Trust
-- Primary Class
Years Ended Mar. 31,
1999 $16.48 $.80(E) $ .10 $ .90 $(.80) $(.05) $(.85) $16.53
1998 15.80 .81(E) .71 1.52 (.81) (.03) (.84) 16.48
1997 16.10 .83(E) (.11) .72 (.83) (.19) (1.02) 15.80
1996 16.02 .89(E) .15 1.04 (.89) (.07) (.96) 16.10
1995 15.80 .85(E) .22 1.07 (.85) -- (.85) 16.02
Tax-Free Intermediate-Term Income Trust
-- Primary Class
Years Ended Mar. 31,
1999 $15.61 $.67(F) $ .08 $ .75 $(.67) $(.01) $(.68) $15.68
1998 15.22 .67(F) .39 1.06 (.67) -- (.67) 15.61
1997 15.34 .68(F) (.12) .56 (.68) -- (.68) 15.22
1996 15.06 .68(F) .28 .96 (.68) -- (.68) 15.34
1995 14.96 .72(F) .10 .82 (.72) -- (.72) 15.06
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------------
Net
Total Net Investment Net Assets,
Expenses Expenses Income Portfolio End of
Total to Average to Average to Average Turnover Year
Return(A) Net Assets(B) Net Assets(C) Net Assets Rate (in thousands)
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
Maryland Tax-Free Income Trust
-- Primary Class
Years Ended Mar. 31,
1999 5.16% .70%(D) .70%(D) 4.71%(D) 12.9% $166,458
1998 8.97% .70%(D) .70%(D) 4.97%(D) 18.9% 154,468
1997 4.73% .67%(D) .66%(D) 5.18%(D) 6.0% 145,974
1996 7.11% .59%(D) .58%(D) 5.29%(D) 14.1% 146,645
1995 6.60% -- .54%(D) 5.32%(D) 9.5% 142,314
Pennsylvania Tax-Free Income Trust
-- Primary Class
Years Ended Mar. 31,
1999 5.54% .70%(E) .70%(E) 4.82%(E) 10.6% $75,093
1998 9.80% .71%(E) .70%(E) 5.00%(E) 14.1% 68,048
1997 4.61% .67%(E) .66%(E) 5.20%(E) 13.6% 64,875
1996 6.52% .54%(E) .53%(E) 5.42%(E) 17.2% 65,275
1995 7.03% -- .49%(E) 5.42%(E) 2.1% 63,929
Tax-Free Intermediate-Term Income Trust
-- Primary Class
Years Ended Mar. 31,
1999 4.82% .70%(F) .70%(F) 4.24%(F) 17.9% $63,502
1998 7.12% .71%(F) .70%(F) 4.34%(F) 9.0% 59,255
1997 3.71% .67%(F) .66%(F) 4.43%(F) 8.9% 54,736
1996 6.47% .57%(F) .56%(F) 4.41%(F) -- 60,042
1995 5.65% -- .34%(F) 4.83%(F) 24.8% 48,837
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Excluding sales charge. Sales charges are being waived for the period
November 3, 1997, to July 31, 1999.
(B) Pursuant to Securities and Exchange Commission regulations, effective
December 31, 1995, this ratio reflects total expenses before compensating
balance credits. Previously, credits were included in the ratio.
(C) This ratio reflects total expenses reduced by the impact of compensating
balance credits and voluntary expense waivers described below.
(D) Net of fees waived by the Adviser in excess of voluntary expense
limitations as follows: 0.50% until June 30, 1994; 0.55% until July 31,
1995; 0.60% until March 31, 1996; 0.65% until December 31, 1996; and 0.70%
through July 31, 1999. If no fees had been waived by the Adviser, the
annualized ratio of expenses to average daily net assets for each period
would have been as follows: 1999, 0.94%; 1998, 0.93%; 1997, 0.96%; 1996,
0.95%; and 1995, 0.94%.
(E) Net of fees waived by the Adviser in excess of voluntary expense
limitations as follows: 0.45% until June 30, 1994; 0.50% until July 31,
1995; 0.55% until March 31, 1996; 0.65% until December 31, 1996; and 0.70%
through July 31, 1999. If no fees had been waived by the Adviser, the
annualized ratio of expenses to average daily net assets for each period
would have been as follows: 1999,1.00%; 1998, 1.00%; 1997, 1.04%; 1996,
1.02%; and 1995, 1.01%.
(F) Net of fees waived by the Adviser in excess of voluntary expense
limitations as follows: 0.30% until June 30, 1994; 0.35% until July 31,
1995; 0.65% until December 31, 1996; and 0.70% through July 31, 1999. If
no fees had been waived by the Adviser, the annualized ratio of expenses
to average daily net assets for each period would have been as follows:
1999, 1.03%; 1998, 1.06%; 1997, 1.11%; 1996, 1.10%; and 1995, 1.04%.
See notes to financial statements.
27
<PAGE>
Notes to Financial Statements
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
--------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Tax-Free Income Fund ("Trust"), consisting of the
Maryland Tax-Free Income Trust ("Maryland Tax-Free"), the Pennsylvania
Tax-Free Income Trust ("Pennsylvania Tax-Free") and the Tax-Free
Intermediate-Term Income Trust ("Tax-Free Intermediate") (each a "Fund"),
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. All series of the Trust are
non-diversified.
Pennsylvania Tax-Free consists of two classes of shares: Primary
Class, offered since August 1, 1991, and Navigator Class, offered to
certain institutional investors since March 10, 1998.The Navigator Class
of Maryland Tax-Free and Tax-Free Intermediate has not commenced
operations. The income and expenses of a Fund are allocated
proportionately to the two classes of shares except for Rule 12b-1
distribution fees, which are charged only on Primary Class shares, and
transfer agent and shareholder servicing expenses, which are determined
separately for each class.
Security Valuation
Portfolio securities are valued based upon market quotations obtained
from an independent pricing service. When market quotations are not
readily available, securities are valued based on prices received from
recognized broker-dealers in the same or similar securities. Fixed income
securities with 60 days or less remaining to maturity are valued using the
amortized cost method, which approximates current market value.
Maryland Tax-Free and Pennsylvania Tax-Free each follow an investment
policy of investing primarily in municipal obligations of one state.
Economic changes affecting either of those states and certain of its
public bodies and municipalities may affect the ability of issuers within
that state to pay interest on, or repay principal of, municipal
obligations held by either of those Funds.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax
purposes. Bond discounts, other than original issue and zero-coupon bonds,
are not amortized for financial reporting and income tax purposes.
Dividend income and distributions to shareholders are allocated at the
class level and are recorded on the ex-dividend date. Dividends from net
investment income will be declared daily and paid monthly. When available,
net capital gain distributions, which are calculated at the Fund level,
are declared and paid after the end of the tax year in which the gain is
realized. Distributions are determined in accordance with federal income
tax regulations, which may differ from those determined in accordance with
generally accepted accounting principles; accordingly, periodic
reclassifications are made within the Funds' capital accounts to reflect
income and gains available for distribution under federal income tax
regulations. At March 31, 1999, accrued dividends payable were as follows:
Maryland Tax-Free, $329; Pennsylvania Tax-Free, $152; and Tax-Free
Intermediate, $113.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis for both financial reporting and federal income tax purposes.
28
<PAGE>
--------------------------------------------------------------------------
At March 31, 1999, receivables for securities sold and payables for
securities purchased for each Fund were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
-----------------------------------------------------------------
Maryland Tax-Free $ -- $ --
Pennsylvania Tax-Free 20 --
Tax-Free Intermediate -- --
Federal Income Taxes
No provision for federal income or excise taxes is required since
each Fund intends to continue to qualify as a regulated investment company
and distribute all of its taxable income to its shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Other
Compensating balance credits reflect credits earned on daily,
uninvested cash balances at the custodian, and are used to reduce each
Fund's expenses.
2. Investment Transactions:
For the year ended March 31, 1999, investment transactions (excluding
short-term investments) were as follows:
Purchases Proceeds From Sales
-------------------------------------------------------------------------
Maryland Tax-Free $33,041 $19,948
Pennsylvania Tax-Free 14,371 7,171
Tax-Free Intermediate 12,886 10,526
At March 31, 1999, cost, gross unrealized appreciation and gross
unrealized depreciation based on the cost of securities for federal income
tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Net Appreciation/
Cost Appreciation (Depreciation) (Depreciation)
-------------------------------------------------------------------------------------------------
<S><C>
Maryland Tax-Free $154,024 $10,215 $(214) $10,001
Pennsylvania Tax-Free 70,110 4,446 (40) 4,406
Tax-Free Intermediate 60,373 2,353 (70) 2,283
</TABLE>
29
<PAGE>
Notes to Financial Statements--Continued
-------------------------------------------------------------------------
3. Repurchase Agreements:
All repurchase agreements are fully collateralized by obligations
issued by the U.S. Government or its agencies, and such collateral is in
the possession of the Funds' custodian. The value of such collateral
includes accrued interest. Risks arise from the possible delay in recovery
or potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially. The Funds' investment adviser,
acting under the supervision of the Board of Trustees, reviews the value
of the collateral and the creditworthiness of those banks and dealers with
which the Funds enter into repurchase agreements to evaluate potential
risks.
4. Transactions With Affiliates:
Each Fund has an investment advisory and management agreement with
Legg Mason Capital Management, Inc. ("Adviser"). Pursuant to their
respective agreements, the Adviser provides the Funds with investment
advisory and management services for which each Fund pays a fee, computed
daily and payable monthly, at an annual rate of 0.55% of each Fund's
average daily net assets.
The Adviser has agreed to waive its fees in any month to the extent a
Fund's expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during that month certain annual rates. The following
chart shows the annual rate of management fees; expense limits and their
expiration dates; total management fees waived; and management fees
payable for each Fund:
<TABLE>
<CAPTION>
Year Ended
March 31, 1999 At March 31, 1999
-----------------------------------
Advisory Advisory
Advisory Expense Expense Limitation Fees Fees
Fund Fee Limitation Expiration Date Waived Payable
---------------------------------------------------------------------------------------------------------------------
<S><C>
Maryland Tax-Free 0.55% 0.70% July 31, 1999, or until $384 $38
net assets reach $200
million
Pennsylvania Tax-Free 0.55% 0.70% July 31, 1999, or until 213 16
net assets reach $125
million
Tax-Free Intermediate 0.55% 0.70% July 31, 1999, or until 197 12
net assets reach $100
million
</TABLE>
Legg Mason Fund Adviser, Inc. ("LMFA") serves as administrator to
each Fund pursuant to an administration agreement with the Adviser. The
Adviser pays LMFA a fee, computed daily and payable monthly, at an annual
rate of 0.05% of each Fund's average daily net assets.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as distributor of the Funds. Legg Mason
receives an annual distribution fee and an annual service
30
<PAGE>
--------------------------------------------------------------------------
fee, based on each Fund's Primary Class's average daily net assets,
computed daily and payable monthly as follows:
<TABLE>
<CAPTION>
At March 31, 1999
--------------------
Distribution Service Distribution and Service
Fund Fee Fee Fees Payable
- -----------------------------------------------------------------------------------------------
<S><C>
Maryland Tax-Free 0.125% 0.125% $35
Pennsylvania Tax-Free 0.125% 0.125% 16
Tax-Free Intermediate 0.125% 0.125% 13
</TABLE>
Legg Mason also has an agreement with the Funds' transfer agent to
assist it with some of its duties. For this assistance, Legg Mason was
paid the following amounts by the transfer agent for the year ended March
31, 1999: Maryland Tax-Free, $17; Pennsylvania Tax-Free, $2; and Tax-Free
Intermediate, $6.
The Adviser, LMFA and Legg Mason are corporate affiliates and wholly
owned subsidiaries of Legg Mason, Inc.
5. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in
a $200 million line of credit ("Credit Agreement") to be utilized as an
emergency source of cash in the event of unanticipated large redemption
requests by shareholders. Pursuant to the Credit Agreement, each
participating Fund is liable only for principal and interest payments
related to borrowings made by that Fund. Borrowings under the line of
credit bear interest at prevailing short-term interest rates. For the year
ended March 31, 1999, the Funds had no borrowings under the line of
credit.
6. Fund Share Transactions:
At March 31, 1999, there were unlimited shares authorized at $.001
par value for all Funds of the Trust. Share transactions were as follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
----------------- ---------------- ----------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------------------
<S><C>
Maryland Tax-Free
-- Primary Class
Year Ended March 31, 1999 1,898 $31,226 367 $6,039 (1,538) $(25,317) 727 $11,948
Year Ended March 31, 1998 1,148 18,744 390 6,342 (1,288) (20,984) 250 4,102
Pennsylvania Tax-Free
-- Primary Class
Year Ended March 31, 1999 938 $15,546 157 $2,609 (681) $(11,288) 414 $6,867
Year Ended March 31, 1998 503 8,232 148 2,413 (630) (10,263) 21 382
Tax-Free Intermediate
-- Primary Class
Year Ended March 31, 1999 1,067 $16,756 123 $1,931 (937) $(14,722) 253 $3,965
Year Ended March 31, 1998 955 14,796 124 1,926 (879) (13,638) 200 3,084
-----------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Report of Independent Accountants
To the Board of Trustees of Legg Mason Tax-Free Income Fund and the Shareholders
of Maryland Tax-Free Income Trust, Pennsylvania Tax-Free Income Trust, and
Tax-Free Intermediate-Term Income Trust:
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Maryland Tax-Free Income Trust, Pennsylvania Tax-Free Income Trust and Tax-Free
Intermediate-Term Income Trust (comprising Legg Mason Tax-Free Income Fund,
hereafter referred to as the "Funds") at March 31, 1999, and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
April 30, 1999
32
<PAGE>
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<PAGE>
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<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Annual Report
March 31, 1999
Legg Mason
Tax-Free
Income Fund
Maryland Tax-Free
Pennsylvania Tax-Free
Tax-Free
Intermediate-Term
Primary Class
[LEGG MASON FUNDS LOGO]
HOW TO INVEST(SM)
<PAGE>
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
Legg Mason Capital Management, Inc.
Baltimore, MD
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., President
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Edward A. Taber, III
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Accountants
PricewaterhouseCoopers LLP
Baltimore, MD
This report is not to be distributed unless
preceded or accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
[Recycle Logo] Printed on Recycled Paper
LMF-030
5/99
